Healthcare regulator's move to Kaiser under investigation

SACRAMENTO — California authorities are investigating whether laws were broken when a government regulator went to work for healthcare giant Kaiser Permanente, a company she spent years investigating for the state.

Marcy Gallagher was a supervising attorney at the California Department of Managed Health Care, where she participated in several investigations of Kaiser. Last year, she left state employment and joined the company, where she works in a unit that responds to California regulators.

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Documents reviewed by The Times show she was placed on a Kaiser team that was addressing some of the problems identified by reviews she participated in for the state.

California's Fair Political Practices Commission opened an inquiry after a health workers' union filed a complaint about Gallagher's move. The National Union of Healthcare Workers alleges that her hiring violates a state law barring officials from working in the private sector on the opposite side of issues they handled for the government.

Kaiser "basically bought off a watchdog," said John Boros, secretary-treasurer of the union, which represents about 4,500 Kaiser workers in California and has been battling the company over contracts.

Gallagher declined to comment. Kaiser spokesman John Nelson denied that there had been any wrongdoing and called the complaint a tactical maneuver by the union. Kaiser is cooperating with the investigation, Nelson said.

"We follow the rules," he said. "Ms. Gallagher follows the rules."

It's not unusual for companies to seek an edge by hiring away state officials, said Beth Capell, a consultant with the Sacramento-based consumer advocacy group Health Access.

"They will know the things the regulators turn a blind eye to," she said. "They will know how to talk to the regulator in their own language and obscure problems."

When regulators go to work for the entities they regulated, she said, it raises the concern that "they're all buddies and they're all in this together.… You don't want a person on two sides of the same problem."

California has laws against "revolving door" practices. The state bans public officials from currying favor with potential private-sector employers; from switching sides on specific issues; and from lobbying their former agencies until a year after they leave a government job.

Since 1980, only 12 former officials have been fined for violations of those laws, according to Fair Political Practices Commission records. Three were found to have switched sides on active issues — the allegation the union has made against Gallagher.

Revolving-door laws are "very hard to enforce," said Phil Ung, a policy advocate for California Common Cause. "It only happens when an opposing interest group sees the activity and reports it, or the violation is … egregious."

When Gallagher joined Oakland-based Kaiser, which operates 35 hospitals and insures more than 7 million people in California, the company gained an employee with deep knowledge of how the state monitors it. She participated in at least eight reviews of Kaiser in eight years, according to Department of Managed Health Care spokeswoman Marta Green.

One involved a kidney transplant program that lost track of some patients and delayed critical surgeries, resulting in a $2-million fine in 2006. In another case, the state found poor handling of patient complaints and fined Kaiser $3 million a year later.

Gallagher also participated in a later probe that found flaws in Kaiser's insurance coverage, Green said. The company was not properly tracking which medical procedures were covered, and patients were not adequately informed when the company denied payment for a procedure, according to a May report by Gallagher's former department.

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At Kaiser, Gallagher was part of a team responsible for addressing the insurance problems before regulators returned for follow-up reviews in October, according to an internal Kaiser document dated July 11. Nelson did not answer questions about whether she was still on the team.

The union cites the document as an example of switching sides. Nelson, the Kaiser spokesman, said it would be wrong to "jump to the conclusion" that the document shows any wrongdoing.

"The whole goal of her work here is to help the organization comply with state laws and regulations," he said.

The regulators produced a report in March saying Kaiser was not ensuring that patients received mental health appointments within 10 business days of a request, as the state requires. In addition, patients were given inaccurate information about Kaiser's available services, the report said.

The inquiry resulted in a $4-million fine, levied in June, the second-largest penalty ever imposed by the Department of Managed Health Care.

Gallagher left her regulatory job in July 2012 after participating in the mental health review. The union, in its complaint to the state ethics agency, accused her of switching sides on the issue in "a severe breach of the public's trust."

Nelson said the union's accusation was unfounded.

Kaiser is appealing the $4-million fine, and regulatory officials are assessing whether the company has addressed the state's concerns.